PID #1 Magnolia Creek Refund Process

Update - November 20, 2017

Interpleader Case

On November 14, 2017, the Court held a final disposition hearing in this case. During the hearing, the special master previously appointed by Judge Cox provided testimony regarding his analysis of the PID assessment payment records. The special master testified that he had reviewed payment records for all affected properties and calculated how much each owner in each chain of title had paid, in order to determine what each owner’s proportionate share of the refund of overassessments should be, utilizing the calculation method ordered by the Court of Appeals. The spreadsheet containing the results of the special master’s calculations was admitted into evidence by the Court. At the conclusion of the hearing, Judge Cox accepted a proposed final judgment in the case ordering the disbursement of the funds in the Court’s registry in accordance with the special master’s analysis. The Court signed this order as the Final Judgment in this matter.

The signed Final Judgment Disbursing Interpleader Funds, with the special master’s spreadsheet attached as Exhibit A, can be accessed online (PDF). It is important that you review this order carefully, as it contains details of how and to what address(es) the District Clerk will be sending disbursement checks. The Final Judgment also contains instructions regarding what you must do if you are owed a refund but the Court does not have an address on file for you. The City Council of League City previously authorized the special master’s fees to be paid by the City separately, such that the refunds disbursed will NOT have any deductions for the special master’s services. Please direct questions regarding your refund to the Galveston County District Clerk Accounting Department at 409-770-5153.

Uncontested Claims

The Court’s Final Judgment disposes of the interpleader lawsuit and the $1,382,496.45 in over payments that were subject to competing claims. There exists a further $305,153.34 of over payments that were NOT subject to competing claims and therefore NOT included in the interpleader case. These funds (“Uncontested Money”) have been held by the City pending the final outcome of the interpleader case, because the City wanted guidance from the Court and consistency in how ALL refunds are to be calculated. The City Council at its meeting on the evening of November 14, 2017, authorized City staff to proceed with disbursing refunds from the Uncontested Money, utilizing the same proportionate share method that Judge Cox adopted for the interpleaded funds. The special master has already performed the same analysis and calculations for the Uncontested Money, which staff has compiled into a separate spreadsheet (“City Spreadsheet”) showing payment records for the properties not included in the interpleader case. The City Spreadsheet can be accessed online (PDF). If you own or owned property listed in the City Spreadsheet, please review it carefully to ensure that your current mailing address on file with the City is correct. If it is not, please send your correct address to allena.portis@leaguecitytx.gov so that the City Spreadsheet can be updated. The City anticipates allowing thirty (30) days after posting the second spreadsheet for the process of review and address updating. After that time, the City will mail refund checks to the addresses it has on file.

Calculation of Refunds

There is much confusion regarding the amount of refund that each payor will receive. Please keep in mind that each person who paid assessments, for a property that was overassessed, will get his proportionate share of the EXCESS assessment paid on that property. The payor does NOT get his proportionate share of all of the assessments paid on the property, only of the amount that was overpaid. The amount that was overpaid constitutes the amount that will be refunded for that property (on the spreadsheet, this is the fourth column from the right, entitled Total Refund for Property), but this refund must be allocated proportionately amongst all the payors for that property. Furthermore, the valid amount of assessments differ from property to property. The special master factored all of these considerations into his calculations, and the City has a very high level of confidence in his final spreadsheet.

Update - August 8, 2017

There was constructive discussion at the status conference held at the 56th district court on Aug. 7, 2017, regarding how the case should proceed now that it has been remanded back to the trial court. Judge Cox set a deadline of Aug. 18th for the parties to gather information and present to him a consensus approach to consider.

Update - July 24, 2017

Judge Larry Cox has rescheduled the status conference for August 7, 2017 at 10 a.m. for the parties and the attorneys to gather and discuss the process in light of the Court of Appeals decision.

Update - July 14, 2017

Judge Larry Cox has scheduled a status conference for July 27, 2017 at 9:30 a.m. for the parties and the attorneys to gather and discuss the process in light of the Court of Appeals decision.

Update – April 18, 2017

The 14th Court of Appeals issued its decision (PDF) in this case today. The Court ruled that the trial court should not have decreed that the refunds of the over-assessments are to be paid to the owners of the properties on record as of the date of the trial judgment. Instead, the Court held that the refunds must be paid to all payors of the assessments, in proportion to how much was paid by each owner in the chain of title for each of the properties in the PID.

The Court used the following examples for how the refunds should be allocated:

For a property where only one person paid all of the assessments for that property, that one person would get 100% of the refund, even if that person no longer owned the property on the date of the trial judgment.

For a property where one owner paid 42% of all the assessments paid for that property, and a subsequent owner paid 58% of all the assessments paid for that property, the owner who paid 42% of the assessments would be entitled to 42% of the refund, while the owner who paid 58% of the assessments would be entitled to 58% of the refund, regardless of ownership of the property at the time of the trial judgment.

Any person who filed a claim for a refund, but who never paid any assessments on property in the PID, would receive no part of the refund, even if that person was the property owner on the date of the trial judgment.

Notably, the Court did not render judgment (make the judgment effective to dispose of the case) but rather remanded the case back to the trial court to continue its proceedings in accordance with the ruling of the Court of Appeals. This means that refunds will not be able to be paid until the trial court reconvenes proceedings in this case, gathers more evidence and documentation of which claimants actually paid any assessments on property in the PID, and in what proportion to the total amount of assessments paid for that property, and then ultimately issues a new judgment (to replace its previous judgment) that is consistent with this ruling by the Court of Appeals. The City has no control over how soon this will occur, since the schedule for these proceedings will be entirely up to the trial court.

The City of League City is prepared to work with all parties and the trial court to provide whatever documentation the City holds that would assist in this process of identifying the claimants who are lawfully entitled a refund.

Update - March 29, 2017

To date there has been no ruling issued and the City has no further information regarding the progress of the case.

Update - October 25, 2016

The appellate court took the case under submission in April. To date there has been no ruling issued and the City has no further information regarding the progress of the case.

Update – March 28, 2016

Per information provided by the Court, the case is scheduled for submission based upon the briefs and without oral arguments, starting Tuesday, April 26, 2016. This means that the Court will begin consideration of the matter then, without holding any additional hearing, but there is no way to know when the Court will actually issue its ruling. The City has no further information regarding the progress of the case.

Update – January 4, 2016

On Oct. 7, 2015, MHI Partnership Ltd. and Mag Creek Partners, LP filed an appellate brief with the 14th Court of Appeals (document (PDF)), asking that refunds be provided, proportionally, to those property owners who paid the assessments at the initial rates. The trial court had issued an order back in May 2015 that refunds should be provided to those property owners as of March 13, 2015. No other party filed an appellate brief seeking a particular distribution formula. There is no specified timetable for the Court of Appeals to issue a ruling. MHI Partnership, Ltd. and Mag Creek Partners, LP have requested that the appellate court entertain oral argument, but no decision has been made yet on whether oral argument will be held. No refunds will occur until after the Court of Appeals determines the proper distribution formula.

Update – Aug. 14, 2015

On May 8, 2015, Judge Cox issued Findings of Fact and Conclusions of Law (PDF). Judge Cox held that all funds are “to be distributed to the legal title owner(s) of properties Phase 1 and Phase 2 of the Magnolia Creek Subdivision appearing of record as of March 13, 2015.” MHI Partnership, Ltd. and Mag Creek Partners, LP have appealed Judge Cox’s ruling to the 14th Court of Appeals. As homebuilders that purchased and developed several residential lots within the PID’s jurisdiction, MHI Partnership, Ltd. and Mag Creek Partners, LP contend that the refunds should be provided, proportionally, to those property owners who paid the assessments at the initial rates as opposed to those property owners as of March 13, 2015. MHI Partnership, Ltd. and Mag Creek Partners, LP’s appellate brief will be due in September 2015. There is no specified timetable for the Court of Appeals to issue a ruling. No refunds will occur until after the Court of Appeals determines the proper distribution formula.

Update - April 28, 2015

At this time, Judge Cox has not issued his Findings of Fact and Conclusions of Law. It is uncertain whether the judge will authorize the distribution of funds before the appeal deadline has run its course. The City has supplied the court with up-to-date information which identifies the name and address of refund recipients and the amount to be distributed. The City expects that once a distribution is authorized by the judge, the clerk will issue refunds to the named recipients. It is the City's understanding that the deadline to appeal is June 11, 2015; however, if you are considering an appeal of the judge's decision, the City strongly recommends that you consult with your own legal counsel to confirm the exact deadline and the procedures for perfecting such an appeal.

Update - April 10, 2015

At this time, the City does not have a timeline for the distribution of the PID Refunds.

Status of the Interpleader Case

Judge Cox signed an order on March 13 declaring that all funds on deposit with the court pertaining to Phases 1 and 2 of the Magnolia Creek Subdivision are to be distributed to persons/entities who are record owners on that date. Since that filing, a "Request for Findings of Fact and Conclusions of Law" has been filed by Mag Creek Partners and MHI. The general purpose for this filing is to have the judge explain in greater detail the factual and legal basis for his ruling. Although this filing does not change the judge's ruling, it could delay the court's distribution of funds if a later appeal is filed.

Calculation of the refund amounts

On April 2, 2015 the City filed documents with the court listing the owners of record as of March 13 and the refund amount owed to each property. The refund was calculated in multiple steps. This process was initially outlined in a public meeting held with property owners on July 31, 2013.

Step 1 – Lowered assessment rates

The first step was to lower the assessments. All properties were assessed for the cost of the improvements by dividing the total costs by the area of the each phase of the development and then applying that assessment rate to the area of each lot. Upon recalculating the assessments, the rates were reduced for each phase on August 27, 2013.

Phase 1 - $1.32 was reduced to $0.90 per square foot

Phase 2 - $1.68 was reduced to $1.11 per square foot

This process ‘reset’ the original assessment. Each property then received credit for the principal payments that had been made toward the assessments and a revised balance was calculated. In many cases that balance was negative, an overpayment of assessment.

The assessment ordinance 2013-38 stated that due to the balance of funds in the PID accounts, the PID would no longer collect the assessments and “Balances remaining will be collected at the time of refund.”

These balances and credits are reflected in the 1st column of the interpleader document

Step 2 – Refund the Excess Funds

All funds available are to be refunded to the properties. The total funds available were allocated to the properties based upon the area of the phases and distributed to the properties based upon the calculated rate, in the same manner as the assessments were levied. This calculation was initially prepared based upon funds that were estimated to be available for distribution. The rates calculated by phase were:

Phase 1 - $ 0.4878 per square foot

Phase 2 - $ 0.4290 per square foot

These rates were used to calculate the ‘original allocation of available funds’, the 2nd column of the document.

Step 3 – Calculation of the Residual Allocation

After the original refund calculations, the City Council determined that all available funds would be refunded to the property, so none of the costs of this process would be deducted from the refund amounts. As this process is nearing conclusion, and the final numbers are available, including all investment earnings on the funds, and excluding all costs of the refund process, an additional $101,417 is available for distribution. This amount was allocated to the properties in the same manner as the assessments and the original refund. The “residual allocation” rates were calculated to be:

Phase 1 - $ 0.0290 per square foot

Phase 2 - $ 0.0255 per square foot

This calculation is the 3rd column of the document.

Thank you for your patience as we work on this project. We will continue to work with you until the project is complete.

Update - March 16, 2015

On March 13th, Judge Lonnie Cox issued the attached order in the interpleader action. See part 1, "All funds, not associated with the account number listed in paragraph 2 below, which are the subject of these causes be and are to be distributed to the legal title owner(s) of properties in the Phase 1 and Phase 2 of the Magnolia Creek Subdivision appearing of record as of the 13th day of March, 2015".

Additional information will be forthcoming from the Court and from the City.

Update - February 11, 2015

As previously advised, Judge Cox reset his anticipated ruling date to February 10. The City has been alerted that the judge has rescheduled that date to March 3 due to docket conditions. We will continue to keep residents advised as we receive further information from the Court.

Update - February 5, 2015

Subsequent to the January 20 hearing, Judge Cox set an initial date of February 3 by which his ruling was expected to issue. The judge has reset that date to February 10. Notice of his ruling will be posted as soon as it is available.

Update - January 22, 2015

Judge Cox held a hearing on the interpleader on January 20. We are awaiting his ruling, and will update this page when it is issued.

Update - October 27, 2014

Update - October 22, 2014

The Court has set the final hearing date for January 20, 2015 at 1:30 p.m. The Court has also set a deadline of December 31, 2014 by which any person wishing to do so may file any legal briefs or statements of that party's argument in support of their claim and any legal authority to support that argument.

Update - September 18, 2014

A scheduled status hearing was held this morning. During this hearing a final status conference was set for October 18, 2014. It was also reported that of the total 524 interpleader parties, four remain to be served. It is anticipated that the court may set a final hearing date in December.

Update - September 2, 2014

There will be no new updates until September 18, 2014. Thanks for your patience during this process.

Update - June 13, 2014

The City of League City would like to update those involved in the Magnolia Creek PID refund process. As of Friday, June 13, 2014, there are 38 of the original 515 parties named in the action who have not picked up their certified packets at the post office.

Those who have not picked up their packets and still have questions about the process can consult the City of League City’s frequently asked questions page.

The court held an informal status conference on June 12. At that time, the court did not take any action and set another status conference for September 18, 2014 at 9:30 a.m. This is being done in order to provide additional time for all persons who have not picked up their packets to do so or otherwise receive them by hand-delivery.

At the September conference, it is expected that the court will establish a schedule for a final hearing in the matter. You do not need to personally appear at the status conference in order to receive a copy of any schedules that are entered, as it is expected that the court will mail those to you. In any event, a copy of the schedule will be posted on this website.

One of the topics of interest at the public meeting was whether or not the City planned to use a portion of the refunds to pay legal and administrative costs. The City has not used any of the funds for any purpose. The funds have been deposited with the court. City Council reaffirmed their commitment that court costs are not to be deducted from the refund amounts at the April 22 City Council Meeting.

All expenses for this process have been paid using residual TIRZ funds. The residual TIRZ funds were approved for this purpose by City Council in September 2013. On May 13, Council appropriated additional residual TIRZ funds toward the administrative costs related to this process. No general fund money is allocated to this project and the taxpayers of League City are not funding this process.

Another concern addressed at the public meeting was in regard to public information. The City wishes to alert residents involved in this process that all documents and personal information filed with the court are considered public record and under the Texas Public Information Act are considered government information, which is presumed to be available to the public at their request. It is important to note the City’s investigation into this matter shows that the City did not release any private information during this process to individuals or the press. Any information that was released was released through the court under the Texas Public Information Act.

Update - April 28. 2014

The City of League City would like to update those involved in the Magnolia Creek PID refund process.As of Monday, April 28, 408 of the original 515 parties have picked up their certified packets at the post office.Those who have not picked up their packets and still have questions about the process can consult the City of League City’s frequently asked questions page at http://www.leaguecity.com/index.aspx?NID="2372." You can also view the public meeting held by the City at http://vp.telvue.com/preview?id=T01728&video=193218.

One of the topics of interest at the public meeting was whether or not the City planned to use a portion of the refunds to pay legal and administrative costs.The City has not used any of the funds for any purpose.The funds have been deposited with the court. City Council reaffirmed their commitment that court costs are not to be deducted from the refund amounts at the April 22 City Council Meeting.

All expenses for this process have been covered using residual TIRZ funds.The residual TIRZ funds were approved for this purpose by City Council in September 2013. On May 13, staff will be asking Council to appropriate additional residual TIRZ funds toward the administrative costs related to this process. No general fund money is allocated to this project and the taxpayers of League City are not funding this process.

Another concern addressed at the public meeting was in regard to public information.The City wishes to alert residents involved in this process that all documents and personal information filed with the court are considered public record and under the Texas Public Information Act are considered government information, which is presumed to be available to the public at their request.It is important to note the City’s investigation into this matter shows that the City did not release any private information during this process to individuals or the press.Any information that was released was released through the court under the Texas Public Information Act.

The City would also like to inform those that are a part of the process that staff is making efforts to confirm whether the court will hold the June 12 status conference as scheduled.Staff will continue to keep residents updated on this matter and all matters related to the process through press releases and the City website.

At the August 27, 2013 City Council meeting, an Ordinance was adopted reducing the assessments in Phases 1 and 2 of the Magnolia Creek Public Improvement District No. 1.This ordinance also suspended the collection of future assessments; that is the assessment payments for 2013 and beyond will not be collected. Delinquent PID assessments will be pursued by Assessments of the Southwest and their attorneys.